On November 21, 2017 Medtronic plc (NYSE:MDT) reported financial results for its second quarter of fiscal year 2018, which ended October 27, 2017 (Press release, Medtronic, NOV 21, 2017, View Source;p=RssLanding&cat=news&id=2318070 [SID1234522197]).
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The company reported second quarter worldwide revenue of $7.050 billion, a decrease of 4 percent as reported, with the decline driven by the company’s divestiture of its Patient Care, Deep Vein Thrombosis (Compression), and Nutritional Insufficiency businesses to Cardinal Health that occurred at the beginning of the quarter. Second quarter revenue increased 3 percent on a comparable, constant currency basis, which adjusts for the divestiture and a $35 million positive impact from foreign currency. Excluding the approximate $55 to $65 million impact of Hurricane Maria to the company’s revenue, which was split across the company’s Minimally Invasive Therapies Group and Restorative Therapies Group, second quarter revenue growth would have been 4 percent on a comparable, constant currency basis.
As reported, second quarter GAAP net income and diluted earnings per share (EPS) were $2.017 billion and $1.48, respectively. As detailed in the financial schedules included through the link at the end of this release, second quarter non-GAAP net income and diluted EPS were $1.456 billion and $1.07, decreases of 7 percent and 4 percent, respectively. Adjusting for the divestiture, a positive 1 cent impact from foreign currency, and the approximate 3 cent impact from Hurricane Maria, second quarter non-GAAP diluted EPS increased approximately 5 percent.
Second quarter U.S. revenue of $3.734 billion represented 53 percent of company revenue and decreased 10 percent as reported, or was flat on a comparable basis. Non-U.S. developed market revenue of $2.241 billion represented 32 percent of company revenue and increased 1 percent as reported, or 5 percent on a comparable, constant currency basis. Emerging market revenue of $1.075 billion represented 15 percent of company revenue and increased 9 percent as reported, or 12 percent on a comparable, constant currency basis.
"Our second quarter financial results are very encouraging, when considered in the context of a quarter in which we faced three hurricanes and the California wildfires. Hurricane Maria, in particular, significantly affected our manufacturing operations in Puerto Rico," said Omar Ishrak, Medtronic chairman and chief executive officer. "Against this backdrop, we delivered a sequential acceleration in our organic revenue growth, as expected."
Cardiac and Vascular Group
The Cardiac and Vascular Group (CVG) includes the Cardiac Rhythm & Heart Failure (CRHF), Coronary & Structural Heart (CSH), and Aortic & Peripheral Vascular (APV) divisions. CVG worldwide second quarter revenue of $2.773 billion increased 7 percent on both a reported and constant currency basis. CVG revenue performance was driven by strong, low-double digit growth in CSH and mid-single digit growth in CRHF and APV, all on a constant currency basis.
CRHF second quarter revenue of $1.467 billion increased 5 percent, or 4 percent on a constant currency basis. Arrhythmia Management grew in the mid-single digits on a constant currency basis, driven by high-teens growth in AF Solutions and low-double digit growth in Diagnostics, both on a constant currency basis, as well as strong adoption of the Micra(TM) Transcatheter Pacing System and TYRX(TM) absorbable antibacterial envelope. Heart Failure grew in the high-single digits on a constant currency basis, driven by strong demand for the company’s portfolio of quadripolar cardiac resynchronization therapy-pacemakers (CRT-P), as well as growth in Mechanical Circulatory Support.
CSH second quarter revenue of $854 million increased 13 percent, or 12 percent on a constant currency basis, led by high-thirties growth on a constant currency basis in transcatheter aortic valves on the strength of the recently launched CoreValve Evolut PRO and U.S. intermediate risk indication. In addition, the Coronary business returned to growth, driven by the company’s recent launch of the Resolute Onyx(TM) drug-eluting stent in the U.S. and Japan.
APV second quarter revenue of $452 million increased 5 percent, or 4 percent on a constant currency basis. Aortic growth was led by the solid adoption of the Heli-FX EndoAnchor System and solid performance of the Valiant Captivia thoracic stent graft systems. Peripheral was driven by double digit growth in both PTA balloons and drug-coated balloons. Mid-single digit growth in endoVenous was driven by the recently launched Concerto(TM) 3D detachable coil system.
Minimally Invasive Therapies Group
The Minimally Invasive Therapies Group (MITG) is now organized into the Surgical Innovations (SI) and the Respiratory, Gastrointestinal & Renal (RGR) divisions following the divestiture of its Patient Care, Deep Vein Thrombosis (Compression), and Nutritional Insufficiency (Enteral Feeding) businesses. MITG worldwide second quarter revenue of $1.952 billion decreased 21 percent as reported, or increased 2 percent on a comparable, constant currency basis. MITG second quarter revenue growth reflected mid-single digit growth in SI, which was affected by Hurricane Maria, offset by low-single digit declines in RGR.
SI second quarter revenue of $1.334 billion increased 4 percent on a comparable, constant currency basis, driven by new products in Advanced Stapling and Advanced Energy, including endo stapling specialty reloads, the Signia(TM) powered stapler, and LigaSure(TM) vessel sealing instruments.
RGR second quarter revenue of $618 million decreased 3 percent on a comparable, constant currency basis. The declines were driven by difficult comparisons in its Respiratory business following the return to market last year of the Puritan Bennett(TM) 980 ventilator.
Restorative Therapies Group
The Restorative Therapies Group (RTG) includes the Spine, Brain Therapies, Specialty Therapies, and Pain Therapies divisions. RTG worldwide second quarter revenue of $1.863 billion increased 2 percent on both a reported and constant currency basis. Group results were driven by low-double digit growth in Brain Therapies, offsetting declines in Spine, Specialty Therapies, and Pain Therapies, all on a constant currency basis. Hurricane Maria primarily affected the Spine and Pain Therapies division, as well as the Pelvic Health business in the Specialty Therapies division.
Spine second quarter revenue of $659 million decreased 1 percent on both a reported and constant currency basis. Mid-single digit constant currency growth in Biologics worldwide and low-single digit constant currency growth in Core Spine in international markets was offset by mid-single digit declines in Core Spine in the U.S. as a result of the impact of Hurricane Maria.
Brain Therapies second quarter revenue of $575 million increased 14 percent, or 13 percent on a constant currency basis. Growth was driven by high-twenties constant currency growth in Neurovascular, with strength across its product portfolio. The Neurosurgery business grew in the mid-teens on a constant currency basis, led by strong sales of the StealthStation(TM) S8 surgical navigation system, O-arm2 surgical imaging system, Visualase MRI-guided laser ablation system, and Midas Rex surgical instruments.
Specialty Therapies second quarter revenue of $365 million decreased 1 percent on both a reported and constant currency basis. Mid-single digit global constant currency growth in Transformative Solutions, ENT, and high-single digit international constant currency growth in Pelvic Health was offset by mid-single digit declines in Pelvic Health in the U.S., with the declines driven by the impact of Hurricane Maria on InterStim II sales.
Pain Therapies second quarter revenue of $264 million decreased 8 percent, or 9 percent on a constant currency basis. Growth in Interventional Pain was offset by mid-teens declines in Spinal Cord Stimulation and mid-single digit declines in Pain Pumps, all on a constant currency basis, driven in part by the impact of Hurricane Maria.
Diabetes Group
The Diabetes Group includes the Intensive Insulin Management (IIM), Diabetes Service & Solutions (DSS), and Non-Intensive Diabetes Therapies (NDT) divisions. Diabetes Group worldwide second quarter revenue of $462 million was flat, or decreased 2 percent on a constant currency basis. The group is experiencing strong global demand for its new sensor-augmented insulin pump systems, and similar to the first quarter, growth was tempered as demand outpaced supply. The group’s ability to meet increasing patient demand has improved, as evidenced by the improved sequential revenue growth. In addition, the Diabetes Group’s capacity expansion plans for the second half of fiscal year 2018 are on track.
IIM second quarter revenue declined in the low-single digits on a constant currency basis. In the U.S., IIM experienced a 15 percent growth in new patients. This was offset by delays in converting its existing installed base to new pumps due to CGM sensor supply constraints. In international markets, IIM delivered high-single digit constant currency growth due to the continued strength of the MiniMed 640G system.
DSS second quarter revenue was flat on a constant currency basis. In the U.S., consumables benefited from installed base growth and improved patient utilization, which was offset by price declines and increased payer requirements. In international markets, the Diabeter business had mid-twenties patient growth, while in consumables, installed base growth was offset by temporary market pressures in China and France.
NDT second quarter revenue declined in the high-twenties on a constant currency basis given the temporarily limited supply of sensors for professional CGM. However, the division had 60 percent new account growth in US primary care.
Guidance
Medtronic today reiterated its revenue and non-GAAP EPS guidance. The company’s guidance is given on a comparable, constant currency basis, which accounts for the divestiture of certain businesses from its prior period Patient Monitoring & Recovery division by removing the financial impact of these businesses from the second, third, and fourth quarters of fiscal year 2017, as well as removing the impact of foreign currency.
In fiscal year 2018, the company continues to expect comparable, constant currency revenue growth to be in the range of 4 to 5 percent. While the impact of foreign currency remains fluid, if current exchange rates remain similar for the remainder of the fiscal year, the company’s revenue would be positively affected by approximately $275 million to $375 million for the fiscal year, including an approximate $155 to $175 million positive impact in the third fiscal quarter.
In fiscal year 2018, the company continues to expect diluted non-GAAP EPS growth to be in the range of 9 to 10 percent on a comparable, constant currency basis from the prior year comparable EPS of $4.37. Assuming current exchange rates remain similar for the rest of the year, the foreign exchange impact on the company’s non-GAAP EPS would be approximately negative 2 cents for the fiscal year, including an approximate positive 1 cent impact in the third fiscal quarter.
"We are seeing increased revenue momentum from several important new product launches, which we expect to continue into the second half of the fiscal year," said Ishrak. "The combination of our growth momentum, business and geographic diversification, as well as our scale in markets around the world contribute to our goal of delivering increasingly consistent and dependable results for our shareholders."
Webcast Information
Medtronic will host a webcast today, November 21, at 8:00 a.m. EST (7:00 a.m. CST) to provide information about its businesses for the public, analysts, and news media. This quarterly webcast can be accessed by clicking on the Investor Events link at investorrelations.medtronic.com and this earnings release will be archived at newsroom.medtronic.com. Medtronic will be live tweeting during the webcast on our Newsroom Twitter account, @Medtronic. Within 24 hours of the webcast, a replay of the webcast and transcript of the company’s prepared remarks will be available by clicking on the Investor Events link at investorrelations.medtronic.com.
Financial Schedules
To view the second quarter financial schedules and non-GAAP reconciliations, click here. To view the second quarter earnings presentation, click here. Both documents can also be accessed by visiting newsroom.medtronic.com.